Skyflow expands its regional footprint as it adds generative AI support to its data privacy tooling

Skyflow, a data-privacy startup, announced Friday that it has expanded the number of markets where it offers data residency support for companies that need to keep certain information inside defined borders. In today’s market, you probably can’t keep EU customer data in, say, South America and vice versa, so companies need to take care to keep certain information at home in the market where it was sourced from.

Skyflow started life as a tool to help companies store personally identifying information, or PII, in a secure manner. Its API helps companies “handle all the difficult privacy, encryption and data issues of storing PII and other forms of potentially radioactive data for its customers,” we wrote when we last covered the company.

The startup, which most recently closed a $45 million Series B in late 2021, can now support data residency requirements in Japan, India, Indonesia and Bahrain. The work, Skyflow CEO Anshu Sharma explained to TechCrunch+, will allow software companies to offer their services in more markets, more quickly, while meeting local regulatory requirements concerning where the data lives and the safe storage of personal user information.

Sharma argued that his company’s newly expanded regional data storage capabilities will provide ways to help other companies avoid the complexity of spinning up their own data storage and security frameworks simply to launch in new markets.

Skyflow’s work to support more regions wasn’t cheap. Sharma said that the work had a “high fixed cost,” which Skyflow could afford because it “raised a lot of money,” enabling it to “take on the infrastructure and operational costs” for its customers. (As an aside, this is what venture capital is for: to build ahead of revenue in hopes of collecting outsized market share.)

Given that every tech company — startup and major alike — wants to accrete every scrap of growth possible in the current slow market, you can see why Skyflow expects a return on its spend. If software companies continue to push to reach new markets to sell their services, they will have to handle an array of data regulations and rules on their own. Or they can work with Skyflow or one of its competitors — EverVault, Protegrity, among others — to help meet local requirements.

So far, Skyflow has found notable international adoption. Sharma told TechCrunch+ that his business does more than 40% of its current business with non-American customers. The CEO was quick to point out — by pulling up S-1 filings during our call — that some well-known software companies sported a low-double-digit portion of their revenue from international markets when they went public. It’ll be curious to see if greater regional support pushes that figure above 50% in time; we’ll check back in with the startup in a few quarters.

Where does generative AI come into this?

Skyflow initially focused on offering its service to the fintech and health care verticals. However, it recently built a version of its data storage service to support generative AI services, so when we had Sharma on the phone to talk data residency we also asked a few questions about market demand for LLM-related software services.

Via the startup, how it envisions sitting between corporate information and LLMs. Image Credits: Skyflow

First, we wanted to know if the startup built the tool thanks to known demand or ahead of anticipated need. Per Sharma, his startup started getting calls from customers a few months back about generative AI and how those companies need to keep not just PII, but internally sensitive data as well, away from LLMs. He said that demand is coming from both bottoms-up usage of generative AI tools and executive-level curiosity. Put another way, both corporate drones and corporate demigods alike want to use generative AI, but they don’t want to get into trouble with the sort of data leaks we’ve already seen in the market.

Skyflow expands its regional footprint as it adds generative AI support to its data privacy tooling by Alex Wilhelm originally published on TechCrunch

Skyflow and Plaid partner in effort to bolster fintech data security

Skyflow, which sells data privacy tools for corporate customers, this morning announced a partnership with Plaid, a unicorn that helps pass fintech data between parties through an API.

TechCrunch most recently covered Skyflow when it secured an outsized Series B late last year, a funding event that came after the company raised a Series A less than a year prior. Plaid — a company that we’ve covered regarding its products, fundraising, and abortive attempt to sell to Visa — needs little introduction at this point.

We caught up with Skyflow CEO Anshu Sharma to noodle on the partnership, which he described in a phone call as a way to create pre-configured data “vaults” for Plaid customers. The gist is that Plaid users can store their sensitive user data inside Skyflow quickly using its own API, without a speed penalty when it comes to accessing information.

Sharma also stressed that due to the technology that underpins Skyflow — polymorphic data encryption — users of his company’s data storage system can still run workflows and analysis on their information without decrypting it.

The question at this juncture is simply how many Plaid customers want a data storage solution of the type that Skyflow offers. (TechCrunch has a longer dig into how the startup’s technology works here, from our first coverage of the company.)

The answer could be a fair number.

Skyflow has stayed in TechCrunch’s vision because of its rapid growth. When it closed its Series B last year, Sharma said that his company had grown around eightfold in the preceding three quarters. In our interview regarding the Plaid partnership, Sharma added that while his company’s fiscal first quarter doesn’t close for another week and change, Skyflow had already collected around twice as much “contracted ARR,” or contracted annual recurring revenue, as it managed in Q4 2021. (It’s time for Skyflow to stop sharing comparative numbers and move to hard metrics, given that the company’s next round, a Series C, is decidedly not early-stage, I hasten to add at this juncture.)

Flipping our perspective, what does the partnership mean for Plaid? I’d hazard that Plaid views data privacy in the fintech space as a key plank undergirding its future; if consumers lose faith that using fintech apps and services is secure, their interest in connecting with said products could decline. That would erode Plaid’s long-term potential. So, data privacy matters quite a lot to Plaid, and Skyflow was willing to cook up a special variation of its standard product recipe just for the fintech API company’s customers. Everyone wins? We’ll see.

Will rising interest rates decimate startup valuations?

Hello and welcome back to Equity, a podcast about the business of startups, where we unpack the numbers and nuance behind the headlines.

This is Saturday, which means it’s not a usual day for us to drop an episode. But what are we if not try-hards at heart? So, we’re back today.

What do we have on store for you? I brought Anshu Sharma onto the podcast — and a Twitter space, so make sure you are following the podcast, yeah? — to chat interest rates, technology growth, startup valuations, and how they all tie together. Sharma was the right person to have on the show because he’s been a big tech employee (Oracle, Salesforce), an investor (Storm Ventures, and as an angel), and he’s a founder to boot. So he’s been around not just the block, but several in the world of technology over time.

TechCrunch has covered SkyFlow, his startup, a few times including its most recent fundraise.

Sharma finds some of the in-market worry about rising rates harming tech stocks silly. His thesis boils down to the value of growth on a longer time-horizon than what a DCF-tuned spreadsheet might tell you. That said, rising rates will impact some startup inputs, like venture funds in the medium-term, so there was a lot to chew on.

We try to keep Equity pretty high-level, and focused on discrete events. But why have a show if you can’t use it to scratch your own itches from time to time?

The pod is back on Tuesday due to an American holiday this Monday. Chat soon!

Equity drops every Monday at 7:00 a.m. PST, Wednesday, and Friday at 6:00 a.m. PST, so subscribe to us on Apple Podcasts, Overcast, Spotify and all the casts.

Skyflow’s data privacy API business raises $45M Series B

The market for corporate data privacy products is heating up, with Skyflow announcing a $45 million Series B this morning, just a day after TripleBlind announced a $24 million round.

Skyflow, which TechCrunch has covered since its early-2020 seed financing, offers an API-delivered service that stores personally identifying information (PII), among other sensitive data for customers.

When we last discussed Skyflow, the company had just closed its $17.5 million Series A, back in late 2020. It has since expanded its product mix to include a fintech-data-focused service to help financial technology companies store credit card and other sensitive information. The company offers variations of its service for healthcare companies, as well.

Insight Partners led the new financing event, which included money from venture arms associated with AmEx and Santander. The startup has now raised $70 million, it said in a release.

Skyflow, like many API-delivered companies, wants to take a hard problem and abstract it into a single developer hook. Or, more simply, Skyflow wants to handle all the difficult privacy, encryption and data issues of storing PII and other forms of potentially radioactive data for its customers. (Skyflow uses a zero-trust vault built with polymorphic encryption, in case you are curious.)

In an interview with TechCrunch, Skyflow co-founder and CEO Anshu Sharma emphasized that his company is working to ensure that it can handle data residency requirements and other related regulatory matters so that companies around the world can use its service without attracting the ire of any particular government.

The startup is seeing some success with its model thus far, claiming “8x growth” in the last nine months. From what base — and where that growth scales the company’s revenue run rate to — was not clear. Series B is roughly the point after which we demand harder metrics from startups; this will be Skyflow’s last round where we’ll chat about it without harder figures.

The startup has around 65 staff today and is looking to roughly double that by the end of 2022.

Skyflow didn’t need to raise new funds when it closed its Series B. It has been less than a year since it raised its last round, after all. The company had capital still on its books from that prior investment — around $11 million, per Sharma. That data point matters because it implies that the company raised when it wasn’t forced to by a dwindling bank account, likely giving it leverage in its fundraising.

The company declined to share a valuation on the record, but given the $45 million raise, we expect that the company is now comfortably into the nine-figure range, though where it lands on that interval is not clear. PitchBook data indicates that Skyflow was worth just under $100 million before it raised this round, so a valuation of $300 million to $500 million feels range-correct for its Series B, if we were the guessing type.

The issue of data privacy is not small. TripleBlind and Skyflow are not the only companies working on the matter, though they both have healthcare-facing products for sale. Certainly, with its new raise, Skyflow has the cash to make its case that it has built the right product for its target markets and thus will not find itself eventually subsumed into some larger technology shop.

Thinking one level up from the startups we’re discussing, companies are only accreting more data to themselves as time passes. If that weren’t the case, we wouldn’t see Databricks scaling its revenues and valuation as rapidly as it is. More data, more risk. More risk, more demand for privacy-focused software. In secular terms, startups focused on solving the data storage and security issues are running downhill.

Skyflow raises $17.5M more to help companies protect your personal data

Startups that raised earlier in 2020 are finding success again before the year closes.

Today it’s Skyflow, a startup that TechCrunch covered in May when it announced a $7.5 million round. The company disclosed a new investment worth $17.5 million on Tuesday. The new round, a Series A, was led by Canvas Ventures. Foundation Capital, which led the company’s earlier Seed round, also took part in the deal.

Skyflow’s business offers customers the ability to store sensitive data in a zero-trust repository, or vault, that is accessible via an API. The company uses so-called polymorphic encryption to keep customer data secure, and to allow for granular access to data — more here, if you’re up for a white paper on the subject.

At the time of the company’s earlier Seed round, TechCrunch wrote that if its tech works as described, “Skyflow could help a host of companies that either can’t afford, or simply can’t be bothered, to properly protect your data that they have collected.”

It appears that the tech works, as the startup has landed a number of customers in the intervening months. After Skyflow’s product launched in July it secured its first customer in under two weeks, a seven-figure contract, according to co-founder and CEO Anshu Sharma. By the woefully out-of-date rule of thumb that a software startup is ready to raise a Series A once it reaches $1 million in annual recurring revenue (ARR), Skyflow graduated to the next level of startup maturity rapidly. Although that initial contract may have had a longer time-horizon than a single year.

Given that its initial annual contract value (ACV) was attractive, and the company sports eight-figures worth of pipeline today according to its CEO, it’s not a surprise that Skyflow was able to raise more capital.

Canvas Ventures got interested even before that deal landed, pinging the startup about an investment after it announced its Seed round. Paul Hsiao, a general partner at Canvas, reached out and asked the company if it was looking to raise a Series A in June. The company balked at talking on more capital, asking Hsiao for some time to consider despite the offer coming with an attractive valuation (nine-figures, per Sharma).

After closing more customers, the company still had plenty of cash in the bank, but started talking to investors about taking on more capital anyway (always raise when you don’t need to is old venture advice for a reason). Some large funds wanted ownership stakes in the startup that failed to delight its founding team, the CEO said. In the end, the first investor to conviction won out, and Skyflow closed the deal with Canvas.

What’s ahead for Skyflow

The startup is honing its go-to-market motion. Sharma told TechCrunch that Skyflow has built out variations of its product to target market segments like finance, healthcare, and identity, areas that are rife with regulation and sensitive data. For Skyflow, the inherent radioactivity of those datasets is what is was built to manage, so it’s not afraid to wade in.

Skyflow is staffing up as well, especially to handle larger customers that require a sales force. A release from the company that TechCrunch viewed before publication added that Skyflow intends to hire more engineers, and continue its work more on offering vertical-specific product variants.

Sample product view, via the company.

The startup also made a few key hires in recent months, including Paul Kopackim the former CMO of Heroku who joined recently, and Karthik Rajan, a former Salesforce engineering VP.

With good initial traction and more capital, Skyflow is in a good spot. Now it simply needs to keep the growth coming, and all the data it is securing safe. We’ll bother the company for new growth metrics when it’s been selling for a full year.

Investors, founders report hot market for API startups

Startups that deliver their service via an API are having a moment. Or perhaps a year.

Speaking with founders and investors this year, it has become clear that the API model of delivering a product is more than an occasional hit-maker for companies like Twilio or Plaid. Instead, it appears that there is ample room for lots of API-powered startups to build and prosper.

TechCrunch took note of a cluster of funding rounds for API-powered startups earlier this year, only to see more of the same as startups like Alpaca (equities trading via an API) reported massive growth and Noyo (APIs that link players in the health insurance market) raised new capital.

There’s more to come. Twilio’s Jeff Lawson told TechCrunch recently that “the world is getting broken down into APIs” as “every part of the stack of business that a developer might need to build is eventually turning into APIs that developers can use.”

We should expect to see more startups, then, pursuing the business model as time passes.

To dig deep into the API-focused startup space, we’ve done something unusual today. Instead of merely ringing a bunch of VCs to get their take — though we did that as well — we took the time for this survey to also bring a number of entrepreneurs into the conversation.

With two sets of questions targeted at each group, here’s who we corresponded with:

And they had a lot to say.

Big themes

We’ll limit ourselves to two themes from investors and two from founders. But don’t worry, as we’ve embedded full responses down below.

Starting with investors, our chief takeaway was that the money folks are bullish on not only the current generation of API-powered startups, but also on their future. We asked about the possible union between API-powered startups and low-code/no-code technologies. Our hunch was that as more folks can code in some manner, and APIs get better, there comes a day when nontraditional developers can leverage application programming interfaces.

That day, if it comes, could provide a huge boost to the startups in the space, right? Root VC’s Edward seems to think so. He answered our question about the possibility of nontraditional developers interacting with APIs in the future with an enthusiastic yes, adding that he believes that “eventually almost everyone will be a programmer, but that our definition of programmer will expand to fit a much broader range of activities.” That could mean lots more folks out there ingesting, using and paying for access to APIs that startups will be there to offer.

Even more, Edwards added that the same forces work in reverse, that “API-driven businesses enable low-code implementations and give superpowers to junior developers or people who don’t consider themselves developers at all.”

Shasta’s Roth agreed, saying that “these are highly related segments: low code and APIs.”

Our second investor takeaway is that it’s too simplistic to merely say that API-focused startups are going to be akin to SaaS startups in many ways, albeit with lower gross margins. They are not worse businesses than SaaS startups. Instead, they are different. Roth noted, for example, that API-delivered startups should have strong gross retention (logo retention), but that they may not have strong upselling power (net retention). Adding to the nuance of the conversation around economics, the Accel duo said that while API-powered startups may have “endemically lower” gross margins than SaaS startups, they also often feature “lower spend on sales and marketing and stronger net retention, both via lower churn and faster, bigger expansion.”

So, the net retention point is probably not fully settled yet, but what is clear is that our previous view of API startup economics is probably a bit simplistic.

From our trio of founders, two quick things. First, the venture capital community is as active as you’d expect, especially when it comes to preemption. Second, their startups tend to have improving economic profiles over time. The question for them then becomes how far they can run the gross margin numbers up before they go public.

We’ll see. You’ll find full answers below, lightly edited for clarity:

Isaac Roth, Shasta Ventures

Are API-delivered startups a plank in your firm’s general investment thesis? If so, why? 

Yes, very much. But making APIs an investing pillar is like making SaaS an investing pillar — it’s too broad. Rather, we have integrated the understanding that there is a shift to composable capabilities and that it is no longer the domain of custom expensive integrators to hook these capabilities together. The secret sauce is what industries will this affect in which ways, what are the opportunities that arise as a result, which types of APIs will be adopted first and last, of course, where does value lie?

We also see increasing use of APIs by enterprises leading to startups creating solutions for enterprises to manage, monitor and secure APIs and home-grown applications created using those APIs. 

Are you seeing most API-delivered startups in the market for capital today find new places to apply APIs, or are you seeing the majority of startups pursuing the model working inside of market areas known to be API-friendly? What market segment is the ripest for API-delivered startup disruption?

The unbundling of financial services, which makes way for innovation and personalized experiences is a great opportunity. That one is easier to realize. An underappreciated opportunity is in HR and corporate finance where monolithic applications integrate many functionalities that could benefit from evolving separately and could be knit together by each enterprise in a manner that is oriented toward their unique needs.

Security is another industry where every solution seems to have its own stovepipe interface and yet most CIOs and CISOs want integrated panes of glass. There will be low-code solutions for aggregation security information and response.   Additionally, we predict a significant increase in the use of APIs within enterprises and CISOs to look for solutions to manage access and threats emerging from these APIs.

Finally, think about commerce — a segment that has already benefited from the API economy — it was the original poster child for APIs and is finally catching up to that promise. However, because the nature of commerce is being accelerated due to COVID there is a lot of room left here.

Is the economic profile of API-delivered startups, especially from a gross-margin perspective, still on track to land one level below that of SaaS startups?

Until APIs have proprietary value by aggregating data (see my article about this in Programmable Web) the switching cost is lower than SaaS because there isn’t as much stickiness from needing to retrain a workforce if you switch. This means customers have more pricing power. Similarly, APIs enable competition because they define a standard interaction, and this causes lower margins. But keep reading for how to overcome this.

Does strong retention rates amongst API-delivered startups countermand their more limited gross margin profile?

Related to the above, a well-performing API will retain customers but it may not have as strong net retention as SaaS unless the API business can aggregate more value either beneath the API (more functionality) or around the API (management, integration, workflow, compliance, risk management, etc.).

President Trump signs executive order temporarily suspending work visas for H-1B holders

President Donald Trump signed an executive order temporarily halting work visas like the H-1B visa program for highly-skilled workers, cutting off a critical source of foreign labor for tech companies already complaining about tech talent shortages.

Visa-holders already in the U.S. and those applicants who have already received a visa are exempt from the ban. The restrictions are intended to last until the end of the year, which would disrupt the government’s typical process of awarding new visas at the beginning of the national fiscal calendar in October.

Officials from the Trump administration told the Wall Street Journal that the move is intended to protect American jobs, but executives in the technology industry have long warned that visa restrictions would hurt the nation’s ability to compete in industries that have both strategic and financial significance as engines of economic growth.

Tech officials have even cited immigration curbs as a factor that would force companies to relocate more of their operations overseas in an effort to hire and retain top technology talent.

“The technology industry is working overtime to keep Americans connected during a global pandemic by providing food delivery services, telehealth care, collaborative business solutions, and ways for families and friends to stay connected,” said Linda Moore, the president and chief executive of the tech industry’s lobbying group, TechNet, in a statement. “Looking forward, technology will continue to be crucial to the rebuilding of our economy. Today’s executive order only hinders the ability of businesses to make decisions on how best to deploy their existing workforce and hire new employees. This will slow innovation and undermine the work the technology industry is doing to help our country recover from unprecedented events.”

According to news reports, officials expect these new restrictions to last until the end of the year, and expand the immigration bans that the President put in place in April that blocked family members of U.S. citizens from immigrating and slashed the number of visas available to high-skilled  workers looking to immigrate to the US.

Estimates provided to the Wall Street Journal indicate that roughly 525,000 people will be unable to enter the country as a result of the expanded travel restrictions including 170,000 green card holders barred from entering the U.S. since April. The Trump administration official quoted by the Journal called the initiative an “America-first recovery” that would potentially open up 500,000 jobs for out-of-work Americans.

Technology executives are already voicing their displeasure with the reported ban. “Banning all H1B [sic] visas means CEOs like me have to open offices and hire more people in countries like Canada that allow immigration. This visa ban is morally wrong and economically stupid,” wrote Anshu Sharma, the chief executive officer of the technology startup Skyflow.

Investors are also up-in-arms about the decision’s impact on America’s ability to compete.

“Whether his administration realizes it or not, they creating a significant handicap for US innovation. Our most innovative and impactful portfolio companies and many of their employees started as H-1b holders,” wrote Stonly Baptiste, the co-founder of technology investment fund, “We literally couldn’t have built our portfolio in an environment without H-1B. And we’re not even an immigrant focused fund.”

Also on the chopping block are H-2B visas, which are used to let short-term seasonal workers in landscaping and non-farm jobs into the country, J-1 jobs for short-term workers like camp counselors and au pairs and L-1 visas for corporate company transfers.

“By limiting the talent pool for American companies, the US government is hindering our ability to build strong, defensible organizations,” wrote Andy Coravos, the chief executive officer of the healthcare-focused startup Elektra Labs, in a direct message. “The Trump Administration’s Executive Order to suspend foreign work visas is not only based in fear, but also perpetuates fear within our community, and is not in our society’s best interest.”

Healthcare workers, coronavirus researchers, food supply workers in food packaging are all exempt from the visa suspensions.

Technology executives aren’t the only ones coming out against the tighter immigration rules. A group of nine Republican senators including South Carolina’s powerful senior senator, Lindsey Graham, and Texas Senator John Cornyn, issued a joint letter on May 27, which pleaded with the President to reconsider the rumored immigration restrictions.

“Guest workers are needed to boost American business, not take American jobs,” they wrote.

Update June 22: Linked to the published Executive Order.

API startups are so hot right now

Hello and welcome back to our regular morning look at private companies, public markets and the gray space in between.

A cluster of related companies recently caught our eye by raising capital in rapid-fire fashion. TechCrunch covered a few of them, and I read coverage of others. Looking back through my notes and the media cycles that they generated, it feels safe to say that API -based startups are hot right now.

What’s fun about this trend is that the startups we’re considering are all relatively early-stage, so they aren’t limping unicorns staring down a closed IPO window. Instead, we’re taking a peek at startups that mostly haven’t raised material external capital — yet. They have lots of room to grow.

And the group is somewhat easy to understand. Sure, I don’t fully grok their underlying tech — that’s a bit of the point with API startups; they take something complex and offer it in an easy-to-consume fashion — but I do get how they make money. Not only are their business models fairly easy to understand, there are public companies that monetized in similar ways for us to use as a framework as the startups themselves scale.

This morning let’s look at FalconX and Treasury Prime and Spruce and and Skyflow and Evervault, all API-focused startups to one degree or another, to see what’s up.

What’s an API-based startup?

Simply: a high-growth company that delivers its main service via an application programming interface, or API.

APIs help services communicate with other apps, allowing them to execute tasks or request information quickly and easily. These services are sometimes highly valuable because they can offer something complex and difficult, easily and simply.